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Can Social Business Significantly Impact the Microfinance Industry?

February 06, 2008

Muhammad Yunus is blazing another trail in his constant search for new and often unconventional ideas for confronting poverty, head-on. Just as Grameen Bank revolutionized banking with its bottom-up approach, I believe his latest initiative—social business—has the power to transform the way societal problems such as poverty, ill-health and even environmental degradation are addressed.

We have already seen that transformative effect in the success of two social businesses, each one pioneered by Professor Yunus. Grameen-Danone has become operational and shows the potential to significantly improve the nutrition of Bangladeshi children while providing real economic opportunities to local communities. Grameen Green Children Eye Hospital will provide valuable eye care services with the goal of alleviating cataracts, which afflict hundreds of thousands of people in Bangladesh. The first hospital opened in 2007, and three more are planned.

Grameen Foundation has been involved in the successful creation of two social businesses, both of which are mentioned in Dr. Yunus’ new book. One is Grameen-Jameel Pan-Arab Microfinance Limited, a joint venture between Grameen Foundation and the Abdul Latif Jameel Group that advances microfinance in the Arab World. The second, Grameen Capital India, is a collaboration of Grameen Foundation, the Institute for Financial Management and Research (IFMR) Trust of India and Citicorp Finance (India) Limited (CFIL). These social businesses have already shown that by combining the responsive, ever-evolving nature of a capitalist business with the passion inherent in a social change-focused organization, we can create a model in which performance is measured in social impact, and its market value is influenced by the extent to which societal problems are solved.

The microfinance sector can make great gains in expanding its outreach and moving closer to social and financial sustainability through embracing the social business model of for-profit, non-dividend companies with an overarching social purpose. Agree? Disagree? What other strategies can microfinance embrace to propel themselves forward? How can other social businesses model the examples set by microfinance-based social business to enact their own changes, and how can those businesses synergize with MFIs?

Alex Counts is the President and CEO of Grameen Foundation.

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I am totally convinced that social business provides a powerful framework for vastly leveraging the impact of social development work. My background is in the nonprofit social change organizations and foundations, and at least in the U.S. there is a tendency to assume that every new social development project should form a nonprofit 501 c 3 organization and start raising grant support. While this certainly has an important place in our society, it creates from the start a dependent relationship on philanthropy that can be very difficult to overcome (and usually neither the goal nor an legal framework for operating a financially self sufficient operation are established).

Even before Grameen Danone, it strikes me that the Grameen Bank itself is a social business (as opposed to a non-profit) and that this structure is one critical element behind its success in going to scale and working with so many people.

I am creating a social business franchise network in California called TeamWorks. We have the first affiliate, a cleaning business with seven member-owners, operating self-sufficiently in Silicon Valley. Members pull themselves out of poverty by securing much better pay for themselves, getting health insurance, and having long-term assets build in their capital accounts within the business that are financed by profits. Members also learn all kinds of new skills and encouraged to identify and work towards their own goals.

We have a separate entity that provides technical assistance and is now starting new affiliates. Many people suggested early on that this central organization should be a non-profit and seek grants, but I have insisted that it too be a social business (our businesses are organized as LLCs). The affiliates pay 5% of their gross revenues as membership dues to the network's central entity. In the short term, this has made the challenge of getting launched much more difficult financially because this membership fee is initially providing only very modest revenue for the central organization.

In the last year we have been figuring out how to finance expansion -- people's assumptions are that since we are not a non-profit, we can't get grants and since our founding documents forbid investors from making money off the businesses then we can't get traditional investment either. What we have done is established a partnership with non-profit community development organization to host our own TeamWorks Capital Fund. We are now securing grants that go it the Fund, which then makes "equity-like" loans to the new TeamWorks affiliates we are launching.

We get some head scratching at first, but funders are starting to understand and get excited about it. As the network gains steam, it will eventually be able to finance much of its own expansion and will not need any philanthropic investment -- and it will be able to create opportunities for many more low-income people to become co-business owners and improve their lives.

I am so grateful for Professor Yunus' new book as it helps define and give legitimacy to this new arena of work. More specifically, he has drawn a very clear distinction from the "triple bottom-line" ventures out there that are attempting to make money for investors and do social good at the same time. More power to them when they pull it off, but I appreciate Yunus laying out the potential pitfalls and clarifying the distinctions of the "social business" model -- this has been very helpful to us.

Great post, Alex. It is wonderful to hear that Grameen Foundation is a pioneer in the social business field as well with your Grameen-Jameel Pan-Arab Microfinance Limited and Grameen Capital India.

Social business can be a very powerful tool to address social needs. Instead of focusing on profits and wealth creation, the creative energy and organization power of a social business can focus on solving social problems using an entrepreneurial model. With enough profits to cover expenses, the entity can be sustainable and expand over time to reach more people.

My social business, MyLocalCause.com LLC, is a blog based social network for high school and college students who want to make a difference in their communities by creating new service projects (tutoring, recycling, stream cleanup, etc.) and expanding the work of existing non-profits.

So, students and non-profits register for free blogs and then tell their friends and family members to view their blog and buy books/music/electronics/etc. using affiliate ads to generate commissions for their local cause.

A prototype website is set up at MyLocalCause.com. We are transitioning over to more powerful servers and the popular WordPress blogging software over the next two weeks.

[The grameenfoundation.mylocalcause.com blog is a prototype that offers links to your website and GF donation page. Email me for more details about the new site.]

Like many would realize now that they have been emplying social business concept without using the name "Social Businee". However we are entering the new era of Social Business and this can be the panacea to poverty. Its success is really in our mind set. Do you need to be a millionaire tomorrow or end of the year? Lets think about it,there is so much money in the world today, even with the financial crisis at our door steps, so much that with unselfish distribution we can all have proper clean water, sanitation, 3 meals a day etc. But our greediness prevents this from happening. This is the era of appealing to moral well being and revisit our economic, social political frameworks with morality on the centre stage!!!!!